Foreign funds continue to exit the Thai bond market, totalling about 1.5 billion baht since the central bank further loosened its monetary policy, due to profit-taking, says the Thai Bond Market Association (TBMA).
The Bank of Thailand slashed its policy rate by 25 basis points to a record low of 1% at this year's first meeting in an effort to shore up an economy battered by the coronavirus epidemic and the months-long delay in the fiscal 2020 budget bill.
The lowered benchmark rate prompted yields of both short- and long-term government bonds to decline across the board. Bond yields with a maturity of less than six months hovered at 1%, while the 10-year government bond yield stood at 1.3%.
Foreign investors locked in profits after the rate cut prompted bond yields to dip further, with the baht's value depreciating to around 31 against the US dollar.
Bond yields have continuously declined since the start of 2020 amid the US-Iran geopolitical conflict, the novel coronavirus outbreak and the recent rate cut by the Thai central bank, said TBMA senior vice-president Sirinart Amornthum.
Non-resident net outflows in Thai bonds were valued at 2 billion baht on a month-to-date basis as of Feb 7, down from January's inflows worth 11.3 billion baht. Foreign funds in the bond market still remained as net inflows worth 9 billion baht on a year-to-date basis.
Long-term bond yields will remain low for a while, as there are expectations of further monetary policy easing in the second half, said an analyst at Yuanta Securities, speaking on condition of anonymity.
Fund managers will extend the bond duration in their asset management portfolios because yields are poised to continue declining, the analyst said. If interest rates were to fall, the value of a bond with a longer duration would rise more than a bond with a shorter duration.
"Bonds are not attractive for investment, while investing in real estate investment trusts still yields an attractive return, with an average dividend of around 5%," the analyst said.
"We recommend diversifying investment into international stocks, especially technology-related funds. US technology funds have the top performance at around 8% year-to-date. US stocks are also anticipated to outperform other stocks this year, as the government usually campaigns for policies supporting economic growth before the election."
Gold prices rose for two consecutive days after the rate cut, said an analyst at Hua Seng Heng Gold Futures.
The market also forecasts that quantitative easing programme adopted by some major central banks will continue unabated this year against the backdrop of uncertainties, this analyst said.